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The name “hedge fund” derives from the original strategy of safeguarding a portfolio against significant downward trends (declines in stock exchange prices). The possibility of benefitting from rising or declining prices on the stock exchange is characteristic of this kind of funds. There are two distinctive types of hedge funds strategies: The first type either invests in a lot of different asset classes or specializes in a specific type of equities. The second type results from whether the portfolio decisions are made fundamentally (qualitative) or if computer models (quantitative) are used. The volatility of hedge funds is lower than the one of traditional equity funds. More and more hedge funds are operating in accordance to UCITS and are therefore, like traditional funds, subject to the strict Investment Fund Act (InvFG 2011). However, a substantial part of a hedge fund is still subject to the Alternative Investment Fund Managers Act (AIFMG).

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